Defining Your Home Insurance Policy

Home insurance policies vary a lot. You shouldn't copy a neighbor's policy even if you live in the same ZIP code. Below are some of the factors that help define and differentiate home insurance policies.

Perils Policy

Home insurance policy can either cover named perils or open perils. For named peril policies, the policy lists the specific risks that it covers; anything else is excluded. An open perils policy covers everything except the ones listed on the policy. Named perils policies tend to be less expensive than open perils policies.

Coverage Type

The type of coverage also defines the insurance you have. The basic types are actual cash value coverage or replacement cost coverage. An actual cash value places a dollar value on your home and its contents, and you get the specified amount if the insured property is damaged or lost. This will be the case even if the compensation figure is not enough to replace the damaged or lost property. Replacement cost coverage compensates you with enough money to replace the damaged or lost property even if the value of the property has gone up.


Home insurance policies must have compensation limits. The limits protect both insurance companies and their clients. The limits protect insurance companies from losses due to extravagant claims. The companies' clients are protected from exorbitant rates. There are also sub-limits for special items, such as expensive items or rare items. The higher your limits are, the more your coverage will cost.


The deductible is the amount of money you have to spend out of your pocket if you suffer a covered loss. The home insurance company determines the minimum deductible limit, but you are free to raise it. The deductible is the insurer's way of encouraging homeowners to take care of their properties and avoid frivolous losses. The deductible affects your rate; a higher deductible translates to lower rates because it reduces the insurance company's exposure to risk.

Policy Scheduling

Policy scheduling is a practice where a homeowner gets extra coverage (insurance add-ons) for special or valuable property. For example, you may need extra coverage for musical instruments, artwork, or jewelry. Policy scheduling helps to protect expensive items that would otherwise be only partially covered due to insurance limits and sub-limits.

As you can see, there is a lot that goes into defining home insurance. That is why you should sit with your insurance agent and get a customized coverage for your home.

To learn more, contact a homeowners' insurance agency.